1) When companies following IFRS write-up an asset to its current fair value, an
owners’ equity account entitled “revaluation surplus” is credited and disclosed as a
separate line item.
2) IFRS requires the use of direct costing for inventories.
3) Companies that report good news earnings surprises tend to have an upward drift in
stock returns before the actual earnings announcement date followed by an increase in
stock returns at the announcement date.
4) For available-for-sale debt securities the firm does not intend to sell, the previous
amortized cost basis less the other-than-temporary impairment recognized in earnings
becomes the new amortized cost basis of the investment.
5) The financial structure leverage ratio measures the degree to which the company uses
long-term debt to finance assets.
6) The acquired goodwill is $30,000 when the investor pays $100,000 to acquire 40%
of a company’s outstanding voting shares at a time when the fair value of the company’s
net assets was $175,000.
7) Both U.S. GAAP and IFRS apply lower of cost or market in the same manner when
accounting for inventory.
8) GAAP financial reports in the U.S. are intended to reflect the economic condition
and performance of the reporting entity.
9) Financial statement data is useful for contracting purposes regardless of the
accounting methods used by the company and its freedom to change them.
10) GAAP presumes that ownership of less than 20% of another company’s voting
shares constitutes a passive investment.
11) LIFO’s tax advantage is that it provides a lower net income than FIFO during
periods of rising prices and decreasing inventory quantities.
12) Time-series analysis helps identify financial trends over time for a single company.
13) The time at which initial adoption of dollar-value LIFO takes place is called the past
period.
14) Treasury stock is considered to be a deduction from shareholders’ equity.
15) The diluted EPS figure is a conservative measure of the earnings flow to each share
of stock.
16) Under the percentage-of-completion method, the profit to be recognized in any year
is based on the ratio of incurred contract costs divided by estimated total contract costs.
17) Contracting parties understand that financial reporting flexibility affects how
contracts are written and enforced.
18) If the critical event and measurability conditions are satisfied, revenue may be
recognized before the sale
A.as production takes place
B.when the customer pays in advance
C.if the seller legally owns the goods
D.when the customer purchases on credit
19) The following information has been obtained from the Massena Corporation:
100,000 shares of common stock were outstanding on January 1, 2011 .
30,000 shares of common stock were issued on March 1, 2011 .
A 2 for 1 stock split was declared on April 1, 2011 .
The 2 for 1 stock split was distributed on May 1, 2011 .
10,000 shares of common stock were purchased on October 1, 2011 .
What is the weighted average number of shares to be used in the calculation of basic
earnings per share for 2011?
A.247,500
B.216,250
C.230,833
D.209,167
20) Hansel Corporation’s condensed balance sheets appear below:
In a trend balance sheet for 2011, stockholders’ equity is expressed as
A.10.2%
B.100.0%
C.104.6%
D.110.4%
S.E. 2011 $149,000 S.E. 2010 $142,500 = 104.6%
21) Which of the following financial ratios is not a component of the Z score model?
A.Working capital/total assets
B.Sales/total assets
C.Common stock/total assets
D.Retained earnings/total assets
22) Pepper, Inc. agrees to lease equipment from the Blue Corporation for 10 years at
$25,000 at the end of each year. The equipment has a fair value of $175,000 and an
estimated useful life of 10 years. The lease includes a guaranteed residual value of
$10,000. In addition to the lease payments, Pepper will pay $5,000 per year for a
maintenance agreement. Pepper can finance this lease with its bank at a 12% rate. The
lessor’s implicit lease rate, known to the lessee, is 10%. Round all calculations to the
nearest whole dollar amount.
Present value interest factors are:
The entry to record this lease on Pepper’s books is
A.Option a
B.Option b
C.Option c
D.Option d
23) In a common-size balance sheet, each balance sheet account is expressed as a
percentage of total
A.liabilities
B.assets
C.shareholders’ equity
D.assets plus shareholders’ equity
24) Taylor Company began manufacturing operations on January 2, 2011 . During 2011
Taylor earned a pre-tax book income of $150,000 and had taxable income of $200,000.
Taylor had a temporary difference relating to accrued product warranty costs that are
expected to be paid as follows:
If Taylor paid no estimated taxes, the income tax payable at the end of 2011 is
A.$60,000
B.$62,500
C.$65,000
D.$67,000
25) Hill Company entered into the following inventory transactions with its investees
during 2012:
Sold inventory to Grant Inc. for $150,000. The inventory originally cost Hill $120,000.
Grant sold 75% of the inventory during 2012 .
Hill owns 15% of the voting stock of Grant and does not use the equity method to
account for the Grant investment.
Sold inventory to Thornton Inc. for $400,000. The inventory originally cost Hill
$320,000. Thornton sold 60% of the inventory during 2012 . Hill owns 100% of the
voting stock of Thornton.
Which of the following adjustments is not correct with respect to preparing Hill’s 2012
consolidated financial statements?
A.Sales will be decreased $400,000
B.Cost of goods sold will be decreased $368,000
C.Inventory will be decreased $32,000
D.Gross profit will be decreased $110,000
26) Hooker Company sells $200,000 of ten-year, 8% bonds to yield 10% on January 1,
2011 . The bonds pay interest annually on December 31 . The bonds were sold at a
discount of $24,578. The bond carrying value at the end of 2012 is
A.$175,422
B.$178,660
C.$200,000
D.$203,238
27) Divergence between the statutory rate and the effective rate arise for all of the
following reasons except
A.temporary differences
B.state and local taxes
C.various credits offered by the government
D.differential tax rates in foreign jurisdictions in which the firm operates
28) Eagle Corporation acquired a new machine on January 2, 2011 at a cost of
$126,000. The machine has an expected 4 year life and a salvage value of $6,000.
If Eagle uses the straight-line depreciation method, the depreciation expense in 2014 is
A.$16,000
B.$24,000
C.$30,000
D.$40,000
29) The difference in the lessor’s income recognition over the life of the lease, between
an operating lease and a capital lease is
A.zero
B.the amount of the interest revenue
C.the financing revenue minus the depreciation
D.the depreciation expense
30) On January 1, 2011 when the effective interest rate was 14%, a company issued
bonds with a maturity value of $1,000,000. The stated rate of interest is 12%, the bonds
pay interest semi-annually and sold for $893,640. The amount of bond discount
amortized on July 1, 2011 is approximately
A.$1,000
B.$2,555
C.$2,000
D.$5,110
31) Which one of the following items would be charged to the cost of land rather than
the cost of the building?
A.Demolition of an existing structure
B.Capitalization of interest
C.Architectural fees
D.Cost of the foundation
32) Island Corporation owes Mutual Bank a 10% note payable for $100,000 plus
$8,000 accrued interest on October 1, 2011 . Island and Mutual Bank enter into an
agreement whereby Island will pay Mutual $128,000 on the due date of the note on
October 1, 2013 .
If the present value interest factor for two years at 10% is .82645, what will be the new
note receivable balance (rounded) for Mutual Bank?
A.$89,256
B.$105,786
C.$108,000
D.$128,000
33) Key differences between U.S. GAAP and IFRS regarding deferred taxes include all
of the following except
A.reporting of deferred taxes on the balance sheet
B.uncertain tax positions
C.reconciliation of statutory and effective tax rates
D.use of the asset-liability approach
34) In the utilities industry, image advertising and customer safety advertising are
A.both paid for by customers
B.both paid for by shareholders
C.both treated as operating expenses under RAP
D.both treated as operating expenses under GAAP
35) On November 1, 2011, A U.S. company sold merchandise to a foreign company for
375,000 francs. The payment in francs is due on January 31, 2012 . The spot rate was as
follows: $.20 per franc on November 1, 2011; $.21 per franc on December 31, 2011;
and $.19 per franc on January 31, 2012 when the payment was received. Which of the
following incorrectly describes the accounting for this foreign currency transaction?
A.The receivable was recorded at $75,000 on November 1, 2011
B.The receivable was recorded at $78,750 on the December 31, 2011 balance sheet
C.The foreign currency transaction gain included on the income statement for the year
ending December 31, 2011 was $3,750
D.The foreign currency transaction loss included on the income statement for the year
ending December 31, 2012 was $3,750
36) Autumn Company uses IFRS to prepare its external financial reporting. During
2012, Autumn Company had the following information related to cash flows:
With regard to the above information, which of the following is acceptable as part of
preparation of the statement of cash flows?
A.Option a
B.Option b
C.Option c
D.Option d
37) The market value of floating-rate debt of $200,000 will
A.rise by $2,000 with a 1% rise in interest rates
B.fall by $2,000 with a 1% fall in interest rates
C.remain unchanged with a change in interest rates
D.will rise in the short run and fall in the long run with a change in interest rates
38) During 2012, Krug Company reported net sales of $1,025,000. During the year net
accounts receivable increased $39,750 even though Krug wrote-off $7,150 of
receivables as uncollectible; Krug uses the allowance method to account for bad debts.
Krug’s bad debt expense during 2012 was $20,500. How much cash was collected from
customers during 2012?
A.$964,750
B.$957,600
C.$971,900
D.$1,037,100
39) Theta Company has prepared to sell bonds with a stated rate of 6% when the market
rate is 5%. These bonds will sell in the market at
A.par
B.a discount
C.a premium
D.stated value
40) Debt covenants benefit
A.lenders
B.borrowers
C.both lenders and borrowers
D.neither borrowers nor lenders, but are required by the SEC as a condition of issuing
debt securities
41) The market value of the Lite stock investment at the end of 2012 was $210,000.
Which of the following amounts are correct assuming that Como elected to use the fair
value option to account for the Lite investment?
A.Option a
B.Option b
C.Option c
D.Option d
42) Identify the correct order of the three steps constituting the FASB’s “due process”
procedure.
A.Public-hearing stage, exposure-draft stage, and voting stage
B.Discussion-memorandum stage, public-hearing stage, and voting stage
C.Exposure-draft stage, discussion-memorandum stage, and voting stage
D.Discussion-memorandum stage, exposure-draft stage, and voting stage
43) Reasons why companies might accelerate cash collections include the following
except:
A.The company may have an immediate need for cash but be short of it
B.Generally accepted accounting principles permit “off-balance sheet” treatment of
factored receivables and collateralized borrowings, thus enabling management to
“window dress” the company’s financial position
C.There may be an imbalance between the credit terms of the company’s suppliers and
the time required to collect customer receivables
D.Competitive conditions require credit sales but the company is unwilling to bear the
cost of processing and collecting receivables
44) GAAP specifies that when the tax rates change, the
A.asset approach be adopted
B.liability approach be adopted
C.retained earnings approach be adopted
D.income approach be adopted
45) Which of the following statements is not correct regarding amortization when using
the effective interest method (basis)?
A.Amortization of discount on bonds payable (bond discount) increases in later years
relative to earlier years of a bond’s life
B.Amortization of premium on bonds payable (bond premium) increases in later years
relative to earlier years of a bond’s life
C.Amortization of both premium on bonds payable (bond premium) and discount on
bonds payable (bond discount) decreases in later years relative to earlier years of a
bonds life
D.Amortization of discount on bonds payable (bond discount) results in an increase in
interest expense and in an increase in the bond’s carrying value
46) Return on Assets (ROA) can be broken down into these two components: profit
margin and
A.asset utilization margin
B.asset turnover
C.common earnings leverage
D.financial structure leverage
47) Taylor Company began manufacturing operations on January 2, 2011 . During 2011
Taylor earned a pre-tax book income of $150,000 and had taxable income of $200,000.
Taylor had a temporary difference relating to accrued product warranty costs that are
expected to be paid as follows:
The enacted tax rates are 30% for 2011 and 2012; and 40% for 2013 and 2014 . The
deferred tax asset at the end of 2011 is
A.$9,000
B.$12,000
C.$17,000
D.$20,000
48) A timing difference that causes book income to be greater than or less than taxable
income when it is initially recorded is a/an
A.reversing timing difference
B.originating timing difference
C.permanent difference
D.minor difference
49) The Barden Company provides the following information from its Year 3 and Year
4 balance sheets:
The following information is available from the Year 4 income statement:
How much cash did Barden collect from customers in Year 4? Assume all sales are on
credit.
A.$115,000
B.$407,500
C.$425,000
D.$442,500
50) During its first three years of operations a company reported income before taxes of
$1,000,000 in year 1, ($1,800,000) in year 2, and $3,000,000 in year 3 . The income tax
rate applicable to each of the years was 40%. Assume that there weren’t any temporary
differences and a valuation allowance was not necessary.
What is the amount of the deferred income tax asset reported in the year 2 year-end
balance sheet if the company elected a loss carryback?
A.$720,000
B.$320,000
C.$400,000
D.$0
51) Investors who presume that they have no insights about company value beyond the
current market price and use financial statement data to assess firm-specific variables
believe in the
A.market-to-market hypothesis
B.efficient market hypothesis
C.fundamental market hypothesis
D.technical market hypothesis
52) Hatfield Corporation leases a tractor from Star Leasing with a five-year
non-cancelable lease on January 1, 2011 under the following terms:
1> Five payments of $26,379.74 (a 9% implicit rate) due at the end each year.
2> The fair value of the tractor is $100,000.
3> The lease is nonrenewable and the tractor reverts to Star at the end of the lease term.
4> The tractor has a six-year economic life.
5> Hatfield has an excellent credit rating.
6> Star offers no warranty on the tractor other than the manufacturer’s two-year
warranty that is handled directly with the manufacturer.
If Hatfield’s incremental borrowing rate is 11% and the implicit rate is not known to the
lessee, what interest rate will Hatfield use to account for this lease?
A.9%
B.10%
C.11%
D.Cannot be determined from information given
53) The amount reported as net cash from financing activities is
A.$(25,000)
B.$30,000
C.$75,000
D.$80,000
54) Treasury stock is reported within the balance sheet as
A.a long-term investment
B.a short-term investment
C.an account contra to retained earnings
D.an account contra to owners’ equity
55) Internet companies that simply act as agent or broker in a transaction must record
sales based on
A.”gross” basis
B.”net” basis
C.”commission” basis
D.”discount” basis
56) Which of the following measures how readily assets can be converted to cash
relative to how soon liabilities will have to be paid in cash?
A.capital structure
B.maturity structure
C.solvency
D.liquidity
57) Condensed financial data are presented below for the Phoenix Corporation:
The accounts receivable turnover for 2012 is (rounded):
(Assume all sales are on account.)
A.2.0 times
B.6.4 times
C.6.6 times
D.7.1 times